Public Bill Committee

[Mr. Peter Atkinson in the Chair]
BRS 02 Royal Institution of Chartered Surveyors
BRS 04 Mayor of London

The Committee deliberated in private.

On resuming

Peter Atkinson: Good afternoon and welcome. Thank you both for coming along. For the record, please identify yourselves in the normal way.

Karen Dee: I am Karen Dee, head of infrastructure at the CBI.

Julian Lyon: I am Julian Lyon, head of the property group at the CBI.

Peter Atkinson: Thank you. The first question is from Mr. Robert Neill.

Q 134

Bob Neill: Welcome. I have seen the CBIs broad submission on these issues. We know that the idea of the business rate supplement had some of its germination in the Lyons report, which talks about an appetite for greater engagement with local authorities on economic development. Is there such an appetite in the business sector, and is the Bill the right way to engage business in those issues?

Karen Dee: I would like to say that there is an appetite. Certainly most businesses would accept that they should engage more widely with their local authorities. As an organisation, we think that that would be a good thing. Clearly, there are a number of pressures on businesses, so it has to be meaningful engagement and a good use of their time, to encourage them to do so. At the moment, many businesses probably do not believe that to be the case. Under the right circumstancesyou will know what my circumstances arethe BRS might be a route that could encourage local authorities and businesses to engage in a more constructive fashion.

Q 135

Bob Neill: What would be the right circumstances?

Karen Dee: Well, there would have to be a vote. That process would bring benefits to both sides, because it would encourage local authorities to make a thorough investigation of the projects that they are seeking to fund and of the business case, and to work hard and engage with businesses to develop that business case. At the same time, businesses would know that they have a financial stake and a clear mechanism, and a potential cost if they do not engage. The mechanism should encourage positive behaviour.

Q 136

Bob Neill: A mechanism closer to BIDs perhaps, where the object of the project is on a broader scale than most BIDsis that how to understand it?

Karen Dee: Yes. The BIDs model is one that the businesses involved universally say is a good thing. They can all see benefits, and that is why it is working so well. We at the CBI think that that is a good model and that there should be a read-across from the lessons.

Q 137

Bob Neill: Okay. Can you help me? Have you carried out an assessment of the likely impact of the current proposalsif the Bill is unamended, in effecton your members?

Karen Dee: We have not carried out an assessment as such, but there is a pretty obvious potential increase in costs, added to the existing increases that we are facing anyway, as a result of the business rate increases. The increase is significant and, in the current economic climate, certainly not something that many businesses could contemplate. The other thing is that businesses will have to assume that, in going forward, they have to bear the cost, so they will plan accordingly.

Q 138

Bob Neill: If you have BRS and BIDs in place in the same area, should there be an automatic offset?

Karen Dee: The CBI would like to see the offsetting of existing BIDs, particularly when there is not a vote on business rate supplements.

Q 139

Bob Neill: Finally, I want to ask about the threshold that has been talked about£50,000in the light of the upcoming revaluation. Do you have any observations on its adequacy or otherwise?

Karen Dee: We have not taken a specific view on the £50,000, which is not mentioned in the Bill. The CBI is not opposed to the concept of a threshold. We understand the desire to protect small businesses, although, against that background of not opposing it, we would comment that business rates are not necessarily a good measure of a businesss ability to pay or of its profitability. There are some sectors, which are not small businesses, that will find it an equally difficult burden to bear.

Q 140

Bob Neill: Any in particular? Can you elaborate?

Karen Dee: Any property-intensive sector, manufacturing and retail are obvious examples.

Julian Lyon: From the point of view of the £50,000 threshold, or whatever the threshold is, it is important to understand how business rates work in the market to establish whether the threshold is an appropriate mechanism. For example, a six-storey office building might have a major plc occupying two floors, each of the floors being less than the £50,000 threshold and in two separate hereditamentsthe plc would fall below the threshold on both of them. There may be a department that has two floors, but on a single lease or hereditament, it would fall within the scheme. A small business on two floors of the same building would also be caught by the threshold. The threshold itself is relatively arbitrary, particularly when you look at it against the individual hereditaments.

Q 141

Nick Raynsford: First, I want to come back to the issue of the vote and the scheme parallel with the BID. In our evidence session this morning, we explored with the representative of the British Chambers of Commerce the fact that there would be circumstances in which it would be inappropriate for a business vote to stop a major infrastructure project that had wide support, when the business contribution was relatively small. A de minimis position was thus accepted. We asked for a figure from the British Chambers of Commerce and the witness accepted that the 30 per cent. set in the Bill was probably about right. Would you agree, and if not, why not?

Karen Dee: No. We would not agree with that, and we do not believe that one third is the right threshold for a vote. Our position, which we have come to by consulting all our members through all our regional councils in England, is that the only basis on which businesses will think business rate supplements are acceptable is if they have a vote on every proposal.

Q 142

Nick Raynsford: In all cases?

Karen Dee: In all cases.

Q 143

Nick Raynsford: Including Crossrail?

Karen Dee: In principle, yes, we would like a vote on Crossrail. I think that the one thing that our members accept about Crossrail is that it is unique. There will not be many Crossrails.

Q 144

Nick Raynsford: There will not be a vote on Crossrail; you know that?

Karen Dee: We know that that will be in the Bill, but why should Crossrail set the precedent for all other projects? Crossrail is unique, and we have taken the position that you should not design legislation to accommodate a unique project and let it guide or set precedents for others.

Q 145

Nick Raynsford: Even though you know that the business contribution will be a relatively small proportion of the total

Karen Dee: For Crossrail?

Q 146

Nick Raynsford: Yes. Furthermore a negative vote could destroy a project that the CBI and other business bodies have said is fundamental to the future not just of the London economy but of the UK economy.

Karen Dee: Our position is that we believe as a principle that a vote should apply to Crossrail, but we accept that because of its unique scale and status that that might not be possible. However, that should not set a precedent for others.

Q 147

Nick Raynsford: Why not?

Karen Dee: Because Crossrail is a unique project.

Q 148

Nick Raynsford: But we also, in talking to other witnesses this morning, explored the question of why other parts of the country should not be free to develop a similar model for supporting infrastructure in their area, on a similar basis to Crossrail.

Karen Dee: I would find it hard to believe that there are many other places in the country where a £17 billion project on the scale of Crossrail could be developed.

Q 149

Nick Raynsford: Let us scale it down in proportion to the size of the local economy; I can well envisage a situation in which a city region would want to develop major transport infrastructure that was as important to the region as Crossrail is on a larger scale to London and the south-east. Would you really say it was right to deny it the opportunity to do that?

Karen Dee: We would say that businesses should have a vote and that if there was a clear benefit, businesses would vote in favour.

Q 150

Nick Raynsford: Do you accept that there would be a point where the business contribution was sufficiently small not to justify putting at risk a major project primarily funded by other bodies?

Karen Dee: I would say that what businesses would be voting on would be making an extra contribution to a project. You have to set it in the context of the amount that is already collected in business rates and business taxation. I do not believe that businesses would vote against a proposal if they could see that it would deliver real benefits. It is not a question of vetoing projects.

Q 151

Nick Raynsford: As I think the Mayor of London has made very clear, in the case of a project such as Crossrail, the benefits will come in the relatively long term. It is a major project, and it will take a long time to develop. In the short termand we are in difficult short-term circumstancesa business vote could go against something that everyone, including business representative bodies, says is vital to the long-term health of the London and south-east economy.

Karen Dee: In that case, give the businesses a vote and make the case.

Q 152

Nick Raynsford: Their vote could destroy the project.

Karen Dee: I am sorry; our principle is that businesses must be able to vote if they are being asked to contribute significant extra sums to infrastructure projects. We are not saying that that means they have a veto over the entire project.

Q 153

Nick Raynsford: But you are.

Karen Dee: I am saying that they should vote, and the onus is on the local authority to make sure that the project is good, that it sells it well and that the business case is made.

Q 154

Nick Raynsford: I think that everyone would say that that is the case with Crossrail. It is a good project and commands support, but despite the support of business bodies, there is no question but that there is a worry that, were there to be a vote, short-term interests might prevail and that hugely important project might not proceed. It depends on all the component financial elements. If one were taken out, it could bring the whole pile down.

Julian Lyon: From my perspective, there are three points that I would like to make. First, in the absence of a vote, companies have to assume that a 2p levy will be made against them, because they have no say on whether that will happen. Under those circumstances, companies will have to take that levy into account in their budgeting. Secondly, if you have a scheme in which the business community was consulted and then ignored, as happened in Nottingham, for example, there will be considerable business unrest, and I am not sure that I would want to see that.

Q 155

Nick Raynsford: Many of us would be sympathetic to that point, but there is inevitably a wider business community. Not all the wider business community across the whole of London might be as aware as the major business interests are of the strategic importance of an infrastructure scheme such as Crossrail.

Julian Lyon: I understand the points made about Crossrail, and I would like to address every other scheme, apart from Crossrail, that the BRS is designed to deal with. The CBIs position on Crossrail is clear.

Q 156

Nick Raynsford: It is not at all clear.

Julian Lyon: It is clear: we support it.

Q 157

Nick Raynsford: You support Crossrail and want to see this finance proceed, but you do not really want to change your principled opposition to a vote in all cases, even though you know that that might destroy the funding of Crossrail. That is not at all, to my mind, a clear position.

Karen Dee: Our position is clear. We believe that business rate supplements must be put to a vote. That is the only basis on which businesses will feel that they have an acceptable basis. Otherwise, you undermine the relationship with the local authority. Crossrail should not set a precedent. That is our clear view.

Q 158

Nick Raynsford: But the other business voices in the London region, such as London First and the chambers of commerce, have agreed a framework and supported it for funding Crossrail without a vote.

Karen Dee: I think that you will find that when we discussed it with our London members, there was a majority in favour of Crossrail who would acquiesce in the introduction of a business rate supplement, but there are a significant number who do not support it. On the basis of the majority, however, we support Crossrail, and business rate supplements may be a part of that. If you read on, you would find that we felt that it should be subject to a vote, but we understand concerns about the sheer scale of the project. If the Government decided that that is the case, that should not set a precedent for other projects.

Nick Raynsford: Forgive me, but that is as clear as mud.

Q 159

Daniel Rogerson: After that interesting exchange, I think that your position is clear. You have already said in your opinion, and that of most people looking at the Bill, Crossrail is unique. There has been lengthy parliamentary scrutiny, and an Act has gone through, which would not be the case for any other scheme, so do you think that that shows that there has been ample opportunity for people to debate it, get involved and make perfectly clear what their opinion is? Do you agree that that makes Crossrail a different example and that you would be in favour of a ballot for everything else?

Karen Dee: Yes.

Q 160

Daniel Rogerson: We heard earlier from the chambers of commerce that there was a possibility that the BIDs scheme could be expanded to take on larger infrastructure projects. I am a little confused about how that might work. Earlier in your submission you said that you thought that that model could work, as long as there is a ballot. How do you see the interaction of BIDs and potential levies such as this one?

Karen Dee: We naturally support BIDs, as do businesses, and those involved in the BIDs schemes think that they are a good idea. That was why we liked the model. Clearly, this is for a different scale of project, but many of those safeguards should read across. We are concerned, particularly with regard to existing BID schemes, that a business rate supplement would come in on top without the automatic right for an offset, because effectively those tied into the existing BIDs would then be forced to pay something else on top. Clearly, if business rate supplements were also subject to a vote, the two may well work in harmony because a business would be able to take a more rational decision about whether they would want to engage in both. They would offset the benefits, rather than what we foresee happening, which is that there would be a reluctance to sign up to new BIDs schemes given the possible threat of not having a say on a business rate supplement and, therefore, thinking, I cannot afford to pay both or I am not sure about both. There is a concern about the dual risk.

Julian Lyon: One advantage of BID schemes is that they recognise the value attributable to owners as well as the costs to occupiers. Business rate supplements principally derive income from occupiers, but often that would be to the owners benefit. There needs to be a measure that allows owners to contribute if they wish. There may be owners who would prefer to enhance the value of their estate by contributing. In BIDs, voluntary contributions are enabled. With BRS, there is a separation of owner and occupier. That needs to be understood.

Q 161

Daniel Rogerson: But what do you think of the idea that BIDs could be a model for carrying out large infrastructure projects? Do you think that it is possible for a single BID to operate across multiple local authorities, for example?

Julian Lyon: I prefer the structure, but I am not sure that I have carried out the intellectual input needed to assess whether it can be done across multiple areas.

Q 162

Daniel Rogerson: So consultation and the means by which business has a say are the key, rather than the fact that it is a separate scheme.

Julian Lyon: Yes.

Q 163

Daniel Rogerson: The point, which Mr. Raynsford raised, about whether there needs to be a 30 per cent. cut off to get around the veto is very important. Do you agree that the lower the business contribution, the easier it ought to be for alternative sources to be found, if the business community decided that it did not want to go ahead and contribute. Therefore, it is not a veto at all; in fact it is really saying, We do not think that this is the appropriate mechanism to fund that project and if other people in the community want to do it, they need to go away and find another way of doing so.

Karen Dee: Broadly speaking, that is the case. Businesses will vote for something if they see that it is of benefit to them. If they are asked to contribute extra funding, it is right that there is proper, meaningful representation, and, for us, that means a vote.

Q 164

Daniel Rogerson: So setting that as a limit is fairly arbitrary.

Q 165

Paul Farrelly: BIDs seem have been universally feted. I have not conferred with my colleague, but I am interested in rehearsing the history. What was the CBIs position when the BID scheme was first proposed? Did it believe that it was an extra business tax?

Karen Dee: Hand on heart, I do not know, but our position is that we like BID schemes and our business members who are involved in them like them. The introduction of BID schemes was before my time at the CBI.

Q 166

Paul Farrelly: You are not aware of whether the CBI was in favour of them at the time.

Karen Dee: I do not know, but I can find out for you. I can tell you that we support them now because our business members have a proper say, they like the format and feel that they are very engaged in those schemes.

Q 167

Paul Farrelly: I genuinely do not know the answer to this, but maybe my colleague, Mr. Raynsford, will be able to help as we go through. Some of the knee-jerk reactions concern me, particularly those from the British Chambers of Commercethe oral evidence earlier amended the written submission. Like the minimum wage, there is a knee-jerk reaction and when that settles down some of these policies become part of an accepted consensus that they are a good thing. In this case, nobody will be forcing this on to business.
I have heard the word unique again and you can read the record; it was apparent after questioning the British Chambers of Commerce that Crossrail, by definition, is only unique to London because it is in London. There may be other schemes, which are not worked out at the moment, that may gain support. It would be hard to say to people with a well worked out, innovative transport schemefor example, in Manchester or in my area, north Staffordshirethat we cannot do it because the rules only apply to London.
The British Retail Consortium was, in effect, arguing that more of the burden should be placed on your non-retail members, because its members were paying an excess and there was a prospect of small or medium-sized retailers staging a Poujadist revolt if there was a ballot and a dual key, so that the majority outvoted the larger businesses. Looking at the map of London, although my colleague Mark Field is not in his place, I can see very clearly why, given the predominance of black and dark grey in Westminsterand indeed in Greenwich and WoolwichMark definitely would not want a referendum focusing considerably on his constituency that might scupper Crossrail.
I have a final question for you. You say that in principle, you would like a ballot on Crossrail in London. That sounds to me as though in practice, you, like many other people, would not like one, because it might scupper a project of benefit for all due to certain easily mobilised elements.

Karen Dee: Before I answer your question, I would just like to say that the CBI position is far from a knee-jerk reaction. Going back to when Lyons was first published, we have consistently consulted our members, because it is an issue that comes up time and again at all our meetings around our regions. It has been a very careful consultation process with our business members. It is not a knee-jerk reaction to the proposal, and we are not going to change our view suddenly. We are not opposed to business rate supplements, but they must be subject to the safeguard. That is a position that our members believe is reasonable for them to take if they are going to be asked to make additional contributions.

Q 168

Paul Farrelly: Elsewhere, but not necessarily in London?

Karen Dee: Everywhere, as a principle.

Q 169

Paul Farrelly: But in practice?

Karen Dee: In practice, the Government have said that they are not going to have a vote. We would like a vote.

Q 170

Paul Farrelly: Well, this Committee might amend the Bill.

Karen Dee: But as your colleague said, there has been a separate process. Crossrail is unique. It has been through the House, and it has been debated for a very long time. That is not likely to be the situation with all other projects all around England. For that reason, we believe that the business rate supplement must be subject to a vote.

Q 171

Andrew Love: You mentioned the word reasonable as a reflection of your members involvement in discussions about the Bill. To return to a point made by Mr. Raynsford earlier, the business community would be paying far less than a third of the overall cost, as lots of other interests have been taken care of and moneys sought elsewhere. It will not be paying up to the 2p limit that was set upon it. Would it reasonable for the business community, in its narrow self-interest of not wishing to pay any additional cost even though there might be some benefit to itself, to veto a project with clear benefits for citiesI am not talking about Crossrail now; I want to get away from Crossrailin other parts of the country? Is that a reasonable stance for the business community to take?

Karen Dee: I think that you are assuming that businesses will not accept it when a genuine, very careful business case is put to them and they are asked, Will you support this? If businesses see the genuine benefit to the local area, they will vote in favour.

Q 172

Andrew Love: But then I come back to Crossrail and the point made earlier. Clearly the CBI sees the benefits of Crossrail, but you are hiding behind the fact that the Government have decided that it will go ahead. No one has complete confidence that if a vote were given to the business community, it would not veto it.

Karen Dee: I do not know the answer to that, because there has not been a vote.

Q 173

Andrew Love: I think that the answer is that you have a much rosier view of what attitude the business community might strike. You do not seem to take into account the fact that many in the business community would look at their short-term interests. In the short term, Crossrail would make no sense to them; the benefits would all come in the longer term. Therefore, quite a lot of businesses looking at it rationally in their short-term interest would not support it.

Karen Dee: But I think that what we are talking about are additional infrastructure projects and businesses making additional contributions. We have very high business tax rates in this country. There is nothing in here about making people take account of affordability. If we simply introduce mandatory new taxes, businesses will go out of business, which is not good for anybody. We genuinely believemany of our members support thisthat if you can introduce an interesting new project delivering genuine economic benefits, and if businesses can see those benefits, they will vote in favour.

Q 174

Andrew Love: Although it falls outside the scope of this discussion, I would like to refer to business rates. It has been the policy of this Government, and a recognised cross-party policyI thinkthat the level of business rates should be restricted to the rate of inflation. That has been in place for a considerable number of years. During that time, the proportion of rates met from the business community has decreasedin real terms it is exactly the same, but overall its contribution has gone down considerably. However, listening to you, and indeed some of the other witnesses, one would think that this was a huge imposition. There does not seem to be any recognition from the business community that others, especially council tax payers, have had to bear a considerable additional burden, because of the perceived view, accepted around this table, that the business community should be relieved of some of the pressure on local government.

Karen Dee: I can talk only about the Business Rate Supplements Bill, although I would say that business rates are quite a significant burden on businesses and impose an additional cost that businesses have to bear. Let us look at the amount to be introduced this year as a retail prices index increase. We will not necessarily assume that the business tax burden is going down, because it is way above the September figure. The business contribution will increase quite significantly.

Q 175

Andrew Love: It may well be that the RPI figure for this coming September will be negative, but I shall not run into that issue. I shall ask you one final question. The CBI suggested that there should be a centrally set limit on the duration of the business rate supplement. Can you elaborate on that?

Karen Dee: I am not sure that we said that. Did we talk about a centrally set limit? I think that we said that we would want any of the proposals that come forward to have a clear limit, so that when any prospectus or proposal comes forward, businesses will know how much it is designed to raise and for how long.

Andrew Love: But not centrally set?

Karen Dee: It would depend on the project.

Andrew Love: It should be part of the local consultation?

Karen Dee: Absolutely.

Q 176

Bob Neill: I think that about 84 or 85 per cent. of bids are generally approved by a positive vote. The suggestion seems to be that somehow business will adopt a sort of dog-in-the-manger attitude if given a vote. Do you see any evidence to support that?

Karen Dee: Not in the evidence that we have so far. The attitude of our members has been that they can see a case for making a contribution to additional funding projects, but only if they feel that they have a genuine say. That way they will feel that they can work more closely with the local authorities to ensure that they are the right types of schemes and that they will deliver proper economic benefit.

Q 177

Bob Neill: I suppose that one argument would be that the prospect of a ballot can concentrate the mind of the local authority to negotiate with the business community in the early stages to bring forward a project likely to get approval.

Karen Dee: Our view is that it would concentrate the minds of both parties and that that would be a positive thing. It would ensure that local authorities think very carefully about the business case and ensure that businesses also engage more thoroughly and positively with the process.

Julian Lyon: Local authorities in that process should consider the economic benefits flowing to landlords. In cases where occupiers might not want to vote in favour of increased costs for a short period prior to the project going livethrough the BRSbut where a landlord will benefit from increased capital value, there needs to be some recognition of where that capital value is going. If all the burden from the business side is on occupiers paying increased rates, you end up in a situation where it is probable that they will vote against it, because they will not get the benefit. That is an important piece that needs to be understood, and that is where BIDs win through.

Q 178

Sadiq Khan: Is the only form of consultation that is acceptable to you a ballot?

Karen Dee: Yes.

Q 179

Sadiq Khan: So when CBI members are making redundancies or consulting employees do they do it by ballot?

Karen Dee: I am not responsible for that area of policy. I am afraid I do not know the answer to that.

Q 180

Sadiq Khan: Mr. Lyon, have you ever been involved in business?

Julian Lyon: It is not an area that I have any direct knowledge of.

Q 181

Sadiq Khan: Let me ask another question then. Is the only way of obtaining the views of your members a consultation whereby their views succeed in influencing the major project? Is it possible to consult somebody and for their view to be in the minority? For example, if the Chairman was to consult members of the Committee, unfortunately the views of some of us would be in a minority. Is that possible in a democracy?

Karen Dee: We support the dual-key vote, where you need a majority by rateable value, so we accept that you should not have a situation where, for example, one particular business is going to hold up the process as a whole. There should be the protection of the majority of rateable value over a minority of businesses.

Q 182

Sadiq Khan: You believe that there is something special about businesses, that the only form of consultation that they should have is via ballots, and that the statutory consultation that has been guaranteed in every BRS scheme is not adequate for your members?

Karen Dee: We believe that the only form of consultation that is acceptable where businesses are being asked to pay extra taxation for a specific project that is being done locally is a ballot. That is the only form under those circumstances.

Q 183

Sadiq Khan: But different rules would apply to your members when they consult their employees, for example?

Karen Dee: As I said, I genuinely cannot give you an answer.

Q 184

Sadiq Khan: Neither of you have any experience of being employersfascinating.
My second question is in relation to BIDs and BRS. Do you accept that the sort of project that BIDs are designed for is different from the sort of project that we envisage BRS being used for?

Karen Dee: I accept that that is probably the likelihood.

Q 185

Sadiq Khan: Okay. Do you accept that if you were trying to fund a major project you would like to have diverse income streams and sources of capital for the project, that you would not want all your eggs in one basket? Is that a fair general rule?

Karen Dee: I suppose so. It would depend on the type of project and who was taking it forward.

Q 186

Sadiq Khan: I will give you an example. You have accepted that the sort of project that BRS schemes are designed for is different from the sort of project that BIDs are aimed at. You have accepted that, in general terms, when you are funding a project, you should try to get different sources of capital to fund one project, rather than having all your eggs in one basket. In which case, do you accept that it is a problem, when you are trying to get major different income streams to fund a major capital project, for all your other potential income streams to be told that one of the income streams has a veto; that even though those businesses are funding a smaller fraction of the cost of the entire project than everyone else, they can veto it? Do you think that that is likely to encourage or discourage other income streams taking part?

Karen Dee: I do not think that that is the position that we are taking. We are saying that we believe businesses need to have a vote on that extra contribution. I imagine that it would depend who those other contributors were. Some of them would no doubt be local taxpayers who do have a vote.

Q 187

Sadiq Khan: We have an example, which is not hypothetical, with Crossrail. All the evidence suggests, and the Mayor of London, who owes no favours to us, is saying that if we require every single business to be balloted in the way that you want, that will create a real problem for the viability of Crossrail. So we have a live example where my hypothesis proves true. Do you accept that?

Karen Dee: And that is why we have said that Crossrail is a unique project, but it should not be used to set the precedent for all other projects.

Q 188

Sadiq Khan: Right. So you think that there is nothing in the future that could lead to Manchester, Sheffield or Cardiff having the aspiration and the ambition that the previous Mayor and this Government had for London with regard to Crossrail?

Karen Dee: You are suggesting that those local authorities could not make a good enough business case to the business that they should make a contribution. The CBI position is that if the case is good enough, then businesses will vote for it.

Sadiq Khan: My summary of your case is that you want to have your cake and eat it.

Q 189

Derek Twigg: What is your view of the balance of power between central and local government in terms of raising local government financethe ability of local government to raise finance compared with the proportion determined by central Government?

Karen Dee: We have not taken a specific view on the balance. That is not something that I have consulted members on.

Q 190

Derek Twigg: Right. So the CBI has no view on the balance of fundraising powers?

Julian Lyon: We do not support the relocalisation of rates.

Karen Dee: If that is what you are getting at, we do not support the relocalisation.

Q 191

Derek Twigg: I am asking generally. Does this betray a distrust of local government by the CBIthat you do not think local government can be trusted to act responsibly and sensibly? Would your view be contrary to the Financial Times which said that this Bill is a good thing and that local government has moved on considerably in recent years and should be given the chance to win more responsibility? Does it not betray a lingering distrust of local government and its responsibility?

Karen Dee: Many businesses would have the view that they do not have a good relationship with their local authorities and there is an element of mistrust. That is not the case everywhere, which is probably reflected in our managing to get most of our members to say, We want the safeguard of a vote, but we would be prepared to go along with this additional taxation.

Q 192

Derek Twigg: That may be so of some local authorities but there is a general acceptance that since the 80s the relationship has moved on considerably. That is not quite the point in terms of trust that I was making. Are you suggesting that local authorities will come up with some crackpot scheme, which will put a burden on business and drive away jobs from their own areasdrive away the jobs of the very people who vote for them?

Karen Dee: I certainly hope that that would not be the case. I know our members would like a safeguard to ensure that they have a say and that they can work more positively with the local authority to ensure that those schemes are the right ones. Local authorities on their own will not always be able to devise the best schemes. We want to encourage the relationship between businesses and encourage businesses to engage as well. We hope that a ballot would help to achieve that.

Q 193

Derek Twigg: The key thing, therefore, for you is that you do not fully trust local government and that at the end of the day you must have a veto. That is your bottom line.

Karen Dee: We would like a vote

Q 194

Derek Twigg: It is a veto in effect, is it not?

Karen Dee: On that BRS element.

Q 195

Nick Raynsford: A short question on the issue of offsets between BIDs and BRS. I understand from your earlier evidence that you believe that there should be a mandatory offset between the two, that contributions should be deducted automatically from BRS. Is that right?

Karen Dee: Certainly. If there is not a vote on BRS, then we believe there should be offsetting.

Q 196

Nick Raynsford: Okay. So how do you respond to the Mayor of London who says that he will not exempt BIDs from paying the BRS in London? He says specifically in his reasons that without the revenues from businesses in BIDs, Crossrail would have a funding shortfall.

Karen Dee: It is a problem. What can I say? We believe that BIDs should be offset unless there is a vote.

Q 197

Mark Field: Just very briefly.

Peter Atkinson: It will have to be quick.

Q 198

Mark Field: Yes. How is this going to operate? Every last business in Barnet or Bromley will create a BID for a localised benefit on a localised project and thereby exempt themselves from the BRS. Do you not see that there would be a massive problem for a like-for-like exemption? Whatever your concerns about BRSand we do share some of themeffectively to avoid the obligations to Crossrail or anything else in that way would surely undermine the entirety of it. It would become a template for every last authority that was far enough away from the route of Crossrail, or Metrolink in Manchesteror whatever other project were put in placeto subvert the whole idea of the general gain.

Karen Dee: Yes

Peter Atkinson: Order. Sorry to interrupt, Ms Dee, but the deadline has come, so that question will have to remain for ever unanswered. I thank you both for coming here this afternoonwe appreciate the contribution that you have made.

Peter Atkinson: Good afternoon Dr. Grail. Thank you for giving up your time and coming here this afternoon. To start with, for the benefit of the record, please can you introduce yourself?

Dr. Grail: I am Julie Grail, chief executive of British BIDs, a national membership organisation for the BIDs industry.

Peter Atkinson: Thank you.

Q 199

Daniel Rogerson: You may have had the opportunity to look at some of the discussions that we have already had with witnesses. One thing that emerged is that the business community likes the BIDs modelit feels that it works. Can you tell us a bit more about that model and what lessons can be learned from it, in terms of the potential for greater funds to be raised locally from business, in order to provide infrastructure schemes, for example?

Dr. Grail: Yes, sure. As I set out in five points in our brief written submission to the Committee, it is twofold: it is not just about the ballot in advance, it is about the running of the scheme as well. Businesses like BIDs because it is run by business for the benefit of business. It is very much focused on being accountable to that clearly defined electoratenot just at the point of ballot, but through the whole life of the scheme, which is a finite period. That gives them a sense of confidence in what is being managed, year on year. There is a commitment in the business plan at the point that they vote about the amount that they are going to be charged during that period. So they have certainty about how much they will be charged and certainty that if the business plan and the delivery organisation seeks to move away and vary from that business plan, there are ways in which they can bring them back on to the focus of that original commitment. It is also about having those funds clearly ring-fenced for the expenditure of that company, which is governed by the business community. It is by business, for business.
With regard to the business rate supplement, we have heard a lot today about the concern with the ballot. We have some issues with that, but it is not just about the ballot and about getting something set up; it is about managing the relationship going forward. One huge value that we have seen coming out of BIDs is that it has truly brought together local government and the business community. A danger about the business rate supplement is that it could rip it apart again. That would be a terrible shame because we are seeing some great value coming out of strong working relationships between the two partners.

Q 200

Daniel Rogerson: Having had the opportunity to look at the Bill as it currently stands, do you think that if it was enacted, would put into practice something based on the lessons learned from BIDs, or are there potential pitfalls there that need correcting before it is fit for purpose?

Dr. Grail: It is important for me to say that we, as an organisation, are not anti the business rate supplementwe can see that it could work, for a host of reasons, in certain locations. But, to get the Crossrail issue out of the way, London is uniquewe accept that. We hear your point and agree that a full offset in London would be a ridiculous and dangerous move and would give an open door to every business community in London to go and get itself a cheaper business rate supplement, which is ridiculous. We have been encouraging the Mayor to consider a partial offset at a value which was reasonable to the business community, but not such that it would enable people a free vote into a bid. So we are asking for 0.25 per cent. offseta quarter of their price of a bid levy.
Beyond that, we can see outside of London all sorts of scenarios where a business rate supplement could work very well. We could certainly see how business communities and existing partnerships in town and city centres might benefit from having part of a budget that has been drawn from a wider area, directed straight into a town centre company via a business rate supplement rather than a BID ballot. So we are not against it, in principle, but there are points of concern. I mentioned the starting point earlier: there will be no control for a business community under the current arrangements in the Bill in terms of the ongoing management of the funding, and no safeguards to give businesses any sense of governance over the ongoing spend of the money. Indeed, without a finite, fixed perioda BID has five yearsthere is no knowing how long that situation might go on.
There is a general acceptance that, in many cases, as someone said, it will become a normal cost to business, which it might, but the problem is influencing ongoing spend. There is a concern about offset outside London and we can envisage scenarios in which we will be in danger of losing the BID concept completely in number of areas. I will give you some of the numbers: in the next three financial years, 51 of the current 76 BIDs will go to renewal ballot; and in London, 14 of the current 18 BIDs will go to renewal ballot by 2012. I am not scaremongering when I say that there is huge concern about the period after 2010, when businesses could be asked for a BID levy, even though you might be able demonstrate value, when they have just been charged 2p, especially in London.
We therefore acceptthis is another point in our submissionthat a full offset in the case of London is not possible, but phasing in a business rate supplement in certain areas of the market is possible. That is in the impact assessment document. In London, if you could consider a phasing in of the business rate supplement to safeguard the businesses in the BID areas that are going to renewal in that tricky period, over two and a half years, you would hopefully safeguard the life of BIDs in London.
It is also very important to recognise that most of the BIDs in London that are going to ballot will be seen as a barometer for the rest of the country, because they are trailblazers and the ones that are going to renewal ballot first. If we start losing the ballots in London, it will put a really negative message out to the rest of the country, which needs to be borne in mind.

Q 201

Daniel Rogerson: Although you have been clear that it is not all about ballots, and that there other concerns, particularly ongoing managementthat useful point has not come up before, so I appreciate that you mentioned itdo you think it likely, bearing in mind what you just said, that if businesses know that they will not be balloted for a potential supplement, they will say no just in case, because they are worried about the overall cost to them? Will the lack of a ballot have an effect on the likelihood that BIDs will continue or come together?

Dr. Grail: Yes, without a doubt. With the layering of occupancy costs, if the only thing that businesses have a choice over is the BID levy, and they are in a tight market, that is what they will choose not to go ahead with.
Having said that, we are trying to design BIDs that are focused on local need and that are of value to the local community. Some of that goes back to the earlier debate on ballots for the business rate supplement, which we might say yes to for major infrastructure schemes across a region when we are dealing with an entirely different issue and project scale. Part of the worry that businesses have about business rate supplementlet us say that we are talking about outside London, because there is a different debate in Londonis that local authorities will seek to use the Bill to fund activities that would be better funded through a BID. That will be a dangerous situation, because you will lose a strong business-local authority relationship, which we have just established, and which I talked about earlier.

Q 202

Nick Raynsford: May I pursue that point a little? If there were to be a scheme involving, for example, infrastructure investment in a particular city region or area, is it likely that local authorities would enter into a BRS without trying to engage local businesses in a constructive way? They were required by the legislation to consult local businesses, and I would have thought that the likelihood of winning support without such engagement was minimal. Let us remember that if the contribution is more than a third, there has to be a ballot. Do you think it likely that local authorities will simply enter into major projects of this nature without bothering to consult business in the way that you rightly want them to?

Dr. Grail: Well, I do not mean to sound facetious, but we have run a lot of ballots and have been at the coal face of running BID ballots in the past four years. As someone mentioned earlier, a ballot really focuses the mind for both sides on what is deliverable, workable, viable and acceptable. That is very different from a consultation. In a consultation you can ask the questions you wish to ask to glean a particular answer. A BID ballot, or any type of ballot on business, focuses peoples minds on whether there is real value for money in that project. I do not believe that consultations will necessarily achieve that. A cynic will suggest that you simply design your project so that it only reaches less than a third of the project cost, in order not to put yourself through a ballot. If I was on the other side of it, I would do that.

Q 203

Nick Raynsford: If we take the example of CrossrailI am sorry to go back to it, but it is the only concrete one we havethere was clearly detailed discussion with representative business bodies. Their support was secured. The only evidence we have of a concrete project shows that the public authority did not cynically use the absence of a ballot to push through its plans.

Dr. Grail: That is right. I absolutely agree with that. As we heard earlier, the worry is that we must not make Crossrail the precedent for building the rest of the Bill and the rest of the ways in which this is likely to work. A major infrastructure project of this type with layering of funding is an entirely different situation from an upper tier authority elsewhere in the country looking to fund economic development activity in a relatively small region. It is a totally different scenario.

Q 204

Nick Raynsford: I accept there are differences but I would have thought we would want to try to learn from the experience of Crossrail and the positive relationships that have been developed between the promoters of Crossrail and the business community in London to try to spread that, in the same way that you are quite rightly trying to spread good practice from successful BIDs to other areas.

Dr. Grail: I am not sure that that experience could be translated down to a local authority elsewhere in the country and its relevant business community. I still spend a lot of time being asked by local authorities how they can get a BID in their area. They argue that we should get those businesses to put their hands in their pockets because they have more money than they have. That is not what the relationship is about. Because you have to go through a lot of hoops to develop a BID and a real reality check to go through a BID ballot, we are seeing the process slowed and we are seeing very carefully crafted BID proposals going out to the business communities. If we did not have the safeguard of the ballot, a great many more BIDs would have tried to come through to the business community and we would see some really poor behaviour.

Q 205

Nick Raynsford: You know that I am extremely supportive of all that you have done and of the development of the BIDs programme. Can I change the theme for a moment to the slightly different but rather important issue of how you ensure that the landowners who currently do not contribute to BIDs and will not contribute to the business rate supplements may be involved? This is an ongoing issue that has been discussed right from the outset. It has not, contrary to the gloom mongers at the start, destroyed the BIDs programme, but it remains a weakness and it is a weakness with the business rate supplement scheme, in that landowners will not contribute, although they will benefit very considerably from the infrastructure investment. Do you have thoughts on how this particular knotty problem might be resolved?

Dr. Grail: I confess to being one of the gloom mongers at the beginning. I still believe that there is a place to have the option for a provision of a mandatory property owner levy within BIDs in areas where it is appropriate. There are still areas across the country, particularly the bigger cities and the centre of London, where they want to see a mandatory property owner levy to supplement their occupier levy. We have done some forecasting of what might happen to the make-up of a BID budget if you have a business rate supplement and you have pressures on the occupier. The danger is twofold: there is a real pressure to try to force more money on to the owners without the ability to do that in a mandatory way, and to force more charge on to the small businesses below the threshold because they are currently not paying a BID levy. If they are not to pay a business rate supplement either, they will reduce the thresholds in BIDs and put a lot more money on the bottom end.
You say that a lack of a mandatory levy has not been detrimental to BIDs growing. In some ways

Q 206

Nick Raynsford: I did not say that. I said that it had not scuppered them.

Dr. Grail: I painfully agree with you. In one way it has not, and we have seen real growth, but still the property owner position has not changed. Property owners still wish to see a mandatory levy. We now have some concrete evidence thatdespite some early good will by owners investing, particularly ahead of a ballot, to see a BID come into beingthey are dropping out as time goes on. They are dropping out of property sales; there is no commitment for a new owner of a property to carry on that voluntary contribution, and some of the bigger BIDs are losing huge amounts of annual income as a result. With one owner, you may lose £100,000 a year from a previous contribution. That is a real danger, so there is definitely a problem that has not yet been resolved.
We still believe that there is an opportunity to put in a provision for a mandatory owner levy if a BID chooses to use itnot to use it everywhere, but when it is necessary. There are scenarios where it would never be used and never be workable. For instance, with huge disparate ownership it would be far too much of an administrative burden to start charging them; but where you have reasonably large portfolios you could top-slice the top 20, 25 or 30 owners with a threshold, in the same way as we do with occupiers, and raise a reasonable amount in a guaranteed and sustainable way. That, I think, is what BIDs are going to need to have in the longer term if they start having these additional occupier costs.

Q 207

Nick Raynsford: What is the safeguard against freeloadersthose who evadeif you do not have a rigorous system for identifying all the landowners? Without that, how can you ensure that things will be fair?

Dr. Grail: You would not charge all of them. You do not charge all occupiers, because there are very few BIDsI could probably count them on one handthat charge every single business on a rating list. They have a threshold, dropping a whole load at the bottom end that cannot be identified, or advertising hoardings and so on. They sometimes take people out and cap them at the top end. There is a recognition that a core of businesses can pay an equitable amount.
The same goes for looking at the property perspective. There can be a core groupfor example, the New West End Company, where about 26 owners account for something like 85 per cent. of the ownership of the area. That is an entirely acceptable core group to be charged.
Yes, there are some freeloaders, but there are freeloaders everywhere. This is better than having 100 per cent. of freeloaders. In this case, they have 18 voluntarily at the moment, and are trying to get the additions. You can never have a perfect scenario, but that is far better than what we have at the moment.

Q 208

Mark Field: You referred to what might almost be called confusion in the minds of many business men about the difference between BIDs and the business rate supplement, although there are some clear distinctions in the way that they should operate. I accept that these are dire economic straits for many in business, both retailers and other businesses occupiers, but surely it is in part your role to make the case for a distinction between BIDs and BRS.
I am used to central London BIDs, where even two or three roads can form a distinct area. However, we gathered this morning that, for instance, the entire city of Coventry is under a single BID. Does that not run counter to what BIDs are trying to do? Indeed, does it not promote the sort of confusion between the BRS route and BIDs? It is counter to the very idea of the BID, which should be very localised, and the whole question of additionality, which I can appreciate is central to many of your business clients.

Dr. Grail: Yes, Coventrys is a city-wide BID. It includes 2,500 businesses, and it is quite different from virtually every other BID. However, that is an unusual case. It is not really the core focus for which BIDs were designed. BIDs are about a local affinity to a local area. Indeed, some BIDs that have gone beyond 1,000 or 1,100 hereditaments have been criticised by business, which does not believe that BIDs should be of that scale. It believes that much of the value of BIDs is their local focus.
Having said thatI know it is different legislation, but it is not far awayDublin went through a ballot last year and is now running with 2,700 businesses. It remains to be seen how accountable that is. None the less, you are right that one of the real values of BIDs is that they are local. There is an optimum number of businessesa manageable amount that you genuinely communicate with on a regular basisand things are therefore genuinely governed by that business community. That comes back to my original point about the concern regarding business rate supplement. There is no safeguard at the moment that businesses could genuinely engage with that process and help to govern the spend of that fund, over an infinite period of time.

Q 209

Mark Field: But if you are going to maintain the assurances about additionalityI can see that that is very much in peoples mindssurely, from the BID perspective, going down the route of Coventry is presumably in part about you saying, We have x number of businesses that are under the BID umbrella. You are allowing that confusion to come into place. This is a separate

Dr. Grail: I am not allowing it. I did not set up Coventry city-wide BID.

Q 210

Mark Field: No, I accept that, but presumably it is in your interest to say, Listen, there are an increasing number of businesses under the BID umbrella across the country, instead of having a focus on the additional things. Again, in the London context, it is about having extra uniformed quasi-police officers and generally smartening up the streetscapethose sorts of things.
As I see it, one of the big problems of the BRS, and indeed other measures, is additionalitybusinesses turning around and saying, We are already paying our rates; why are we having to pay this bit more? Surely there is a distinction between a large-scale infrastructure projectI accept that Crossrail in London is exceptional in its magnitude and it will be on a smaller scale in other large cities, let alone in townsand what should be a highly localised smartening up of the area, whereby a few dozen businesses can get together and say, We can do something that is going to make this a special area, and the footfall will then come in this area. Surely you should be trying to draw that distinction, rather than allowing this confusion to reign.

Dr. Grail: I am not allowing it to reign. I agree entirely with you: BIDs work because they are localised. There is no magic number of businesses in a BID area, but we tend to look at an optimum figure of between four and[Interruption]businesses as the main core of communication. But if you turn it around, my point about where the business rate supplement may become confused is that, if it is not on core major regional infrastructure projects but more loosely on economic development, you might see citieswe have already heard of somethat opt

Peter Atkinson: Forgive me. There is a Division in the House so we have to adjourn the Committee. If Members could get back as quickly as possible that would be helpful. We do not have votes in this Committee, but as soon as we are quorate and the relevant people are heremewe can start again.

Sitting suspended for a Division in the House.

On resuming

Peter Atkinson: We are now quorate, so we can continue. Can you remember what you were going to say, Dr. Grail?

Dr. Grail: I know exactly what I was going to say.

Peter Atkinson: Excellent.

Dr. Grail: We were talking about the confusion of the breadth of business rate supplement and the focus of BIDs. I was about to say that there is no confusion when you talk about a business rate supplement funding a major regional infrastructure scheme. The confusion comes if the business rate supplement is locally focused, on a small city council, say, which is looking at funding economic development activity instead of running a BID. We have already heard from a number of places in the country that are either putting a halt to entirely or at least postponing the idea of talking about BID development, because they would rather put a business rate supplement in place to fund the types of activity that the local authority would like to do, which is not necessarily the appropriate thing for a business community. That is where some sensitivity comes in and where it is about trying to put the relationship back together, to put a vote in place that would test and scrutinise both sides, in terms of the local authoritys desire to deliver certain things and the reality of what the business community would benefit from in that area.

Q 211

Mark Field: I think I can assure you that the intention of Parliament here is to have those as two separate and distinct streams. There should not really be any confusion now, except that, practically, the people on the ground are possiblydefinitelyconsiderably less qualified than you are to be able to tell us how it all operates. However, that is certainly the intention. They should be distinct streams in how they are operating.

Dr. Grail: I appreciate that, but in fact at the moment there is an ability to confuse the issue. I am not saying that it is the only way, but a ballot would prevent that confusion, because it would scrutinise the position.

Q 212

Mark Field: But do you not agree, Dr. Grail, that another way to confuse is with any sense of an offset? That would help to confuse the issue, if there was a sense of an opportunity to have an offsetwhether of a quarter or a half, whatever the fraction, of your BRS surchargebecause you happen to be part of a BID. That would also go some way towards confusing the very ideas of the two quite separate structures of financing at a local level.

Dr. Grail: If you set the offset at an appropriate level, so it does not give carte blanche for a business community to get a free BIDI agree that that is not the right way to do itand recognises that there is a finite pot of money there. If you do not allow an offset and there is a tight market, and a local authority goes ahead with the business rate supplement, for whatever reason, you are in danger of losing a local delivery body, either now or in the future. That is the reality, but I cannot tell you the evidence, because we have not got it yet. The business community has a real concern that occupancy costs are so tight that the only choice would be a BID ballot.
Another thing that I wanted to mention was raised previouslythe threshold. The earlier paperwork suggested that a £50,000 threshold would safeguard BIDs. Our evidence is to the contrary. We have done detailed analysis of 23 BIDs around the countryall different sizes and typesand 86 per cent. of the BID levy is over the threshold. In London, only one BID is unaffected by the thresholdthat is, it falls so far below it that, in the vast majority of cases, it would be okay. The rest are not safeguarded by that figure at allthe threshold needs to be way higher, to give the majority of BID levy payers a safeguard.

Q 213

Derek Twigg: Dr. Grail, you saidparaphrasing youthat having a vote would provide that safeguard but might not be the only way. I have heard a lot today from representatives of business about how there has to be a vote, full stop and that is it. Is there a plan B in your mind?

Dr. Grail: That might be for you to find out.

Derek Twigg: That is what I am trying to expose.

Dr. Grail: I am not clear whether there is a plan B that can be drawn into the Bill. What I am saying is that there needs to be a sufficient safeguard to enable due scrutiny of a process leading up to a ballot, and then appropriate scrutiny of what goes on beyond that. The ballot is one way of doing that. There may be other ways of doing that.

Q 214

Derek Twigg: Have you any idea of what those other ways may be, given your experience and involvement?

Dr. Grail: It comes back to accountability and transparency. If you are not doing it directly through a ballot process, perhaps you are doing it through a commitment to have a proportion of the business community managing the process as it goes forward. I started by saying that the reason a BID is supported is not just the lead up to it, but the ongoing management. A major concern is that, under the current arrangements, a local authority would collect that money in exactly the same way as it collects business rates and would do with it as it sees fit. The influences over it could change over time and businesses would have no power over that whatsoever.
There is an opportunity, or perhaps a necessity, for businesses to be involved in the ongoing governance of it, which would provide appropriate scrutiny. If you have to set up a company to govern the spending of the money that is collected, that puts an immediate scrutiny on the procedure before you even get through the consultation, because you would need to set it up ahead of the collection process.
That comes back to the fact that we should be forcing local authorities and business communities together, not pulling them apart. If you put them together into an operational company, they have to work together and reach some compromise to join up in a company before the money is collected.

Q 215

Andrew Love: May I come back to the issue that Mr. Field raised? He talked about confusion of the offset, but when we come up with figures in Parliament we are always asked why, so why a quarter?

Dr. Grail: I am sorry. I thought that that was what they asked you.

Andrew Love: They will ask us.

Dr. Grail: The reason we proposed a quarter of 1 per cent. was because it is enough to be a reasonable subsidy to the businesses that will incur double costs without being just tokenistic, but it is nowhere near enough to give an opportunity for a carte blanche BID ballot vote. To raise a quarter of 1 per cent. for free and to have to raise three quarters will take hard work. That will not enable the business organisations that want to get through quickly and easily to be able to do so. If you flip it the other way and give them three quarters free, they will push it through somehow. It means that there is still a valid amount of scrutiny on developing a good quality BID while giving a decent subsidy to the business community. I firmly believe that BIDs and their performances are good because of the real scrutiny of the accountable process that they have to go through at the beginning and throughout year by year.

Q 216

Andrew Love: I want to come back to that, but listening to you earlier and to the answer you have just given suggests to me that this is just a bribe to people in the business improvement zone to support the levy for the business rate supplement. Is that not the case?

Dr. Grail: No.

Q 217

Andrew Love: You are saying that we will reduce it by 0.25 per cent. in order to get them to support what you are trying to achieve, whereas you think that they would not support it if they had to pay the full amount. Is that not a bribe?

Dr. Grail: No, from my perspective, this has nothing to do with whether they support business rate supplement. It is about whether they support the principle of developing a BID for their local area on the basis that they will have to pay an additional levy. I do not give a damn whether they support business rate supplement or not. I am focused on whether they want to make a BID work in their local area.

Q 218

Andrew Love: But there may be people outside the business improvement area who do give a damn about someone else getting a discount or a bribe, whatever we call it. You have a business improvement area where there is a clearly justified reason why business would want to be involved and pay the levy. You have a business rate supplement scheme which one assumes business will support and a clear economic rational for why they would want to do so. The question that I am really asking you is: why should businesses inside the improvement zone get some form of reduction? They are getting an economic benefit in the same way as others, so why should they not pay like everyone else?

Dr. Grail: Because they would be paying twice. The businesses outside the BID area are not paying for the BID levy.

Q 219

Andrew Love: But they are not receiving the benefit of the BID levy or of what is happening inside the business improvement zone. A business that sits outside the business improvement area and gets no benefit from it does not pay anything towards it, but when it makes a contribution to a wider scheme on business rate supplement, those businesses on the inside get some sort of discount or bribe, whatever you want to call it. Would that not be objected to by businesses outside, or do you think that they will be happy that others are getting a reduction?

Dr. Grail: That presupposed that those who propose a BID can clearly demonstrate that for every pound they spend they get at least a pound back, and that is difficult to achieve and demonstrate. I am saying that what we are trying to do is look pragmatically at how we maintain a BIDs movement in this country, because we are in grave danger of losing it. That is how we could recognise that there is a compromise that we could achieve, so that the business community is not given carte blanche to create low-level BIDs but recognises at least some subsidy.
I think that it is an entirely different matter whether the business community supports business rates and what the relevance and focus of that is. How do we protect business improvement districts, which are working well in this country? Business communities, when faced with a 2p levy over which they have no choice and a 1p-ish levy on a BID, will vote against it in many cases at the moment. There are ways to try to safeguard that, at least in part.

Peter Atkinson: On that point, Dr. Grail, we have reached the end of this session. Thank you very much for coming along, and for your informative contribution to our debate.

Peter Atkinson: Good afternoon and thank you for coming along. We have until 6.15 for this session. Could you please identify yourself for the record?

Blake Penfold: My name is Blake Penfold, and I am a chartered surveyor with GL Hearn, which has offices in London and elsewhere in the UK. I chair a policy panel on rating and local taxation for the Royal Institution of Chartered Surveyors, a body governed by a royal charter. We are not a lobby body; we are here to speak in the public interest in respect of the business rates system.

Jerry Schurder: I am Jerry Schurder, head of rating at Gerald Eve LLP, chartered surveyors and property consultants. I am a member of the RICS rating and local taxation policy panel and Blakes immediate predecessor as its chairman.

Peter Atkinson: Thank you. Nick Raynsford.

Q 220

Nick Raynsford: Your written submission implies that the RICS takes a rather negative view of the legislation. First, in paragraph 5, you say that there is little sound economic reason for introducing supplements and little enthusiasm from the business community for such supplements. Do I take it from that that the RICS is opposed to Crossrail?

Blake Penfold: No, we are not opposed to Crossrail. We are in favour of it.

Q 221

Nick Raynsford: So how do you propose that Crossrail should be funded?

Blake Penfold: I will start with a negative, which is a slightly consultant-y way of starting an answer. Our concern about using business rates as a tool to fund Crossrail is that essentially, business rates are, as you will know, a tax on the occupation of property. They accrue on a daily basis, and therefore may accrue over quite a short term. Crossrail is a major infrastructure project by nature whose construction period will be many years and whose life will be way beyond that. We are not satisfied that a tax to do with the occupation of property levied on property occupiers is the correct way to fund a major infrastructure project.

Q 222

Nick Raynsford: The Mayor of London said to us in his evidence that the passage of the Bill allowing the supplementary business rate for Crossrail is essential to enabling Crossrail to be built. Without it, the funding package collapses.

Blake Penfold: That must be a decision for Parliament. It would fall outside my remit as a rating valuer.

Q 223

Nick Raynsford: But I am sure that the RICS has considered the implication. You are not saying that you would be quite relaxed if Crossrail collapsed.

Blake Penfold: No. In 2003, the RICS produced a report with GVA Grimley on funding options for Crossrail. One of those was a supplement on the business rate, but there were a number of others as well. For the reasons that I have tried to explain, we do not see a tax on the occupation of property as the best way to fund a major infrastructure project.

Q 224

Nick Raynsford: Okay. You say that the existing uniform business rate is set at a high level. You will be familiar with the Lyons report.

Blake Penfold: Yes.

Nick Raynsford: He made the very strong case that that was an unsound argument, because other business taxes are low by international comparisons. If you take things in the aggregate, therefore, the uniform business rate is not uniquely high. It itself might be, but the total package of tax on business is not.

Blake Penfold: I understand that entirely. The general rule that seems to me to be good for taxation is that it should be three thingslow, simple and compulsory.

Q 225

Nick Raynsford: Fine, okay. Are you familiar with what has happened to the business rate as a contributor to local government expenditure over the past decade or so?

Blake Penfold: Yes.

Q 226

Nick Raynsford: Do you know that the proportion of local government expenditure met by the business rate has fallen from about 25 per cent., a decade or so ago, to about 20 per cent. currently?

Blake Penfold: Yes.

Q 227

Nick Raynsford: Do you think that that is equitable?

Blake Penfold: It is a proportion of an increasing sum. The actual amount raised from business rates is increasing.

Q 228

Nick Raynsford: But the domestic rate payer and the national tax payer has had to meet a much higher proportion as a result. Is that equitable?

Blake Penfold: They are voters, I suppose. That would perhaps be the position of business.

Q 229

Nick Raynsford: So you are quite relaxed about the fact that on the one side is a declining proportion of business rates supporting local government, and on the other you do not want to see any use of that mechanism to support infrastructure? The RICS position appears to be that the whole burden for increased spending on necessary infrastructure or improving the local economy should fall either on the individual council tax payer or on central Government taxpayers.

Blake Penfold: There might be other options, one of which is outlined in the paper that we put forward: to hypothecate a proportion of the existing uniform business rate to local purposes. That could be levied, for example, by the Mayor of London, for Crossrail.

Q 230

Nick Raynsford: How would that give additionality?

Blake Penfold: It would not.

Q 231

Nick Raynsford: No. And therefore the funding of Crossrail could be achieved only by cutting other aspects of local government expenditure.

Blake Penfold: That is a circumstance with which I am familiar in my own household.

Q 232

Nick Raynsford: Indeed, but if the view of the business community in London, of the Mayor and of central Government is that the Crossrail project is fundamental to the economy of London and the nation, and will require additional spending to get there, you would essentially say, Sorry, but we dont think thats appropriate. Is that correct?

Blake Penfold: I think that we are saying that the business rate system might not be the best way to achieve it, for the reasons that I have tried to explain.

Q 233

Nick Raynsford: Forgive me if I sound a bit exasperated, but you seem to be advocating a position whereby the business rate payer has seen business rates providing a lower proportion of local government spending over the years, as a result of which the burden has shifted to national and council tax payers. When it comes to the need for major infrastructure investments, from which business will benefit hugely, as Crossrail has itself demonstrated, you do not think that there should be any additional contribution from business. That seems to me to be a totally untenable position.

Jerry Schurder: I am not sure that the RICS position is that business should not contribute. We are saying that we do not believe that the rating system is the best mechanism for finding that revenue. The key issue is that it is generally a tax on the benefits of occupation. In the main, but not exclusively, the property system in this country consists of owners and occupiers, and they are not always the samein the majority of instances, they are not. The concernand you raised this issue earlieris that the burden will fall upon the tenant-occupier ratepayer. They might partly benefit from a successful scheme funded by the business rate supplement, but that would take some time to come through. Ultimately, however, the property owner would be the beneficiary of a successful scheme, and they would benefit from increased rental values and increased capital values without contributing to the scheme. The RICS has that concern about a number of the relief schemes that have been used and adopted over time in the business rating system. We do not feel that that is always the best way of targeting relief to what may well be deserving cases. Very often, the relief is targeted at the ratepayer tenant, but at least some of the benefits go to the landlord without them having contributed.

Q 234

Nick Raynsford: I understand that and I hear the argument. However, that argument was used strongly and forcibly five years ago to oppose the introduction of BIDs. BIDs have come in, despite what we acknowledge may be a weakness, and the scheme has proved successful.

Jerry Schurder: I think there is a significant distinction to be drawn between the BIDs model and the business rate supplements. By their nature, BIDs are generally local and usually fund revenue expenditure, be that additional policing, street cleaning, street furniture or whatever. That brings fairly immediate returns to the tenant, the ratepayer. They contribute and they derive benefit. Some of that benefit may flow through to the landlord through increased values. The distinction that RICS draws with the business rate supplement is that generally these are major capital projects over a long time period. Clearly, there are significant elements of expenditure, and for the tenant to pay up front for a number of yearsthey might no longer be the tenant any more by the time the scheme comes to fruitiondoes not make this the best model or system to get business to assist with the funding of capital projects. It is not RICSs position to say that businesses should not assist and contribute, but we are concerned that the business rate system is not the best measure to use.

Q 235

Nick Raynsford: So, tell me your proposal in item 10 of your submission as to how we should introduce a scheme instead of this one, which would essentially derive similar benefits from property owners through supplements on them.

Jerry Schurder: That is a very good question and there is no straightforward answer. At the moment, we do not have a register of all property interests within the country. We have a complex scheme of property ownership with freeholders, head landlords, tenants and subtenants and so on, and that makes it very difficult. I appreciate that that does not assist with the answer to the question, but it is an important fact to bear in mind.
The only solution that we can come up with at this stage is our belief that tenants would feel more comfortable with the concept of contributing towards a BRS scheme if they could see equivalent, landlord contributions. It would not need to be one to one, but perhaps people could see that property owners are prepared to put their hand in their pocket. Property owners will ultimately be the beneficiaries and they should also contribute.
How does one achieve that? We cannot impose itwe do not see how we can have a system of imposing that on property owners. However, if there were a vote in all cases, which many of us are clearly calling for, that would focus the minds of those who propose a scheme to be funded by a BRS and ensure that they get contributions and funding from landlords. That would not only help reduce the element to be paid for by tenants, but it would enable the tenant ratepayer to see that their landlord is serious about the project and is playing a fair part. We cannot prove it, but our perception is that that would assist those voting in a ballot in favour of such a scheme. Perhaps the BIDs model, where landlords have come forward voluntarily and put their hands in their pockets, could assist with that.

Q 236

Nick Raynsford: But unfortunately, there are compulsory ballots in the case of BIDs. We have heard from a number of people, including the British Property Federation, that in practice there are lots of freeloading landlords. The presence of the ballot has not resulted in the high-level contribution that you anticipated it would do in the case of the business rate supplement.

Jerry Schurder: One cannot generalise, but it would focus the mind very much and, indeed, the efforts of the local authority or the levying authority to show tenants, in generaleven if one were not able to show the tenant that his or her landlord is putting their hand in their pocketthat landlords are serious, recognise the benefits of the scheme and are prepared to put forward their money to assist it.

Q 237

Nick Raynsford: A final question. To concentrate your minds and ours, we have a timetable. We know that the business rate supplement is fundamental to Crossrail because we are told that if the levy cannot begin to be charged from April 2010, Crossrail will not proceed. Given that you have interesting ideas about how alternatives might be developed, but nothing concrete to offer, what would you do in our position? Would you say, Dont pass the Bill because we are not entirely comfortable with it, or Do pass the Bill because Crossrail is too important to sacrifice?

Blake Penfold: Some of the difficulty in answering that question is that we would then be trying to move the Crossrail model much more widely, which is the purpose of the Bill. All our objections would remain. Perhaps a way forward would be either hypothecation within the existing UBR or a scheme devoted purely to the funding of Crossrail.

Q 238

Nick Raynsford: But we have already established that the hypothecation within the existing UBR does not give the additionality that is needed.

Blake Penfold: It does not give that, no.

Q 239

Daniel Rogerson: Your position seems to be slightly different from that of some of the other people we have heard from today. Are you saying that the whole basis of doing it on a property basis and a form of business levy to be contributed to the scheme is entirely wrong? When answering Mr. Raynsfords question about an alternative, you seemed to go back to saying, We would have this, but we would try to rope the owners in as wellor are you saying that there should be an entirely different basis for levying a charge on business other than rental value?

Blake Penfold: For reasons that we have explained, we are unconvinced that it is the right route to funding. My concern is probably that our only concrete example is that of Crossrail, a scheme that is perhaps wildly different in scale from others that might come forward under the Bill. We can certainly see substantial objectionsthose that we have tried to explainto using a system that taxes the occupation of property to fund a major infrastructure project with a life of tens of years.

Q 240

Daniel Rogerson: So you concede that business should make a contribution to such projects.

Blake Penfold: Certainly, yes.

Q 241

Daniel Rogerson: What other basis would there be for that other than the model?

Blake Penfold: It would have to revolve around the value of ownership.

Q 242

Daniel Rogerson: Right. In your earlier answer to Mr. Raynsford, you seemed to go back to the fact that you will have to live with it, but that you would want to rope the owners in somehow. Am I being fair?

Blake Penfold: Yes.

Jerry Schurder: If one is to adopt a business rate supplement, the appropriate way forward is to rope the owners in.

Q 243

Daniel Rogerson: I suppose that we need to address the issue of a ballot, which has been discussed. It seems to be the line in the sand that most other witnesses have drawn on behalf of their organisations. Do you think that that is the important element that is missing? Some witnesses in some circumstances developed the ballot in the Bill, but not in others. Or is that less important to your members in your opinion?

Jerry Schurder: We hear the views of business. We hear the views of others as well. We are a broad church. We represent property and are looking for the interest of fairness within the rating systema system that should work for local government as well as central Government and businesses as ratepayers. We hear the call from businesses for a vote. In many cases, they obviously still feel discomfort with their relationships with local authorities, so that is their driver. They are understandably concerned about costs, and any suggestion of an imposition of costs in such difficult times as we are in at the moment worries them. For those reasons, they feel strongly that a vote is the best safeguard to ensure that, where such schemes come forward, they are asked which will be of benefit to them.
There is a track record, through the BID model, of ratepayers voting to pay more tax because they can see benefits. I can see that they would do the same, potentially, if they were offered a vote on business rate supplements. There would not be many business rate supplements in an area, so it is not as if there would be a large number of schemes to vote on, but it would focus the mind very much. Clearly a vote seems a sensible way forward, given the need to ensure that it was additional spending and that it would truly bring benefits to the local economy and, therefore, business.

Blake Penfold: It would also overcome some of the objections that we have tried to articulate about what we perceive as the incorrect use of the system. That perception could not be sustained, if the businesses that were to pay the levy had voted in favour of it themselves.

Q 244

Daniel Rogerson: Finally, what views have you expressed on the £50,000 threshold?

Jerry Schurder: We have quite a lot of questions on the threshold. As we understand it, the logic of it is to protect small businesses, which have rates that represent a greater proportion of their turnover and profit than large businesses rates do. I do not think that there is any dispute about that in general. A small business rates relief scheme already exists to protect the genuine small businesses. I do not perceive any need to have or logic in having a threshold, other than to ease the administration by taking many businesses out of having to pay the levy. At the moment the Bill includes a provision for the same level of relief to be given to a business qualifying for and receiving small business rates relief, which seems to be an appropriate way forward.
If there is to be a threshold, we struggle with it being at £50,000, because there is a disconnect between the current threshold for the small business rates relief and that £50,000 threshold. At the moment, a business will qualify for small business rates relief only if its rateable value is below £10,000. If its rateable value is below £15,000, it does not get relief and the small uniform business rates multiplier is used, as opposed to the large multiplier, so there is a benefit. London, where there is a £21,500 limit, is the exception. There is a disconnect between the £50,000 threshold and the £10,000, £15,000 and £21,500 thresholds. There does not seem to be a great deal of logic in using that number. If there is to be a threshold designed to protect small businesses, it ought to be lower, logically. In any event, we do not necessarily need a threshold because we can just latch on to the small business rates relief scheme, as the Bill currently does.

Q 245

Andrew Love: I am tempted to ask you, Mr. Penfold, in relation to your hypothecation scheme, would you intend there to be compulsory consultation of local government? Would local government get a vote on whether a hypothecation scheme should go forward? That is a silly question. I shall not ask you to answer it, but it seemed relevant that you suggested that we bite a huge hole out of local government finances without any hint of the difficulties that might ensue. It annoyed me.
May I ask Mr. Schurder about the landlord contribution that he mentioned? In business improvement districts there is greater cohesion and the businesses see a very direct benefit, as has been mentioned. However, there has been massive abstentionism among landlords in such areas. Is the scheme that you are suggesting a practical reality? I would like a practical answer. How can landlords be made to contribute or pay up in the way that you think necessary to give confidence to the business community?

Jerry Schurder: There is unfairness if landlords are not contributing, as they are the ultimate beneficiaries.

Andrew Love: That is widely accepted here. I am not asking you about that, but about the practicality of the scheme.

Jerry Schurder: Until that is tested, I do not think that I can answer that.

Andrew Love: It has been tested in business improvement districts. In such areas there would be a much greater likelihood of landlords contributing, yet they do not.

Jerry Schurder: I am not certain that that is the case because of the point that I made on the nature of BIDs as funding revenue expenditure. The beneficiaries are much more likely to be the current tenant ratepayers. BIDs generally provide low levels of expenditure to fund matters that will perhaps draw more customers into an area. That is less likely to translate significantly into improved rental values than a major infrastructure scheme that changes the face of a locality.

Andrew Love: Let me express my frustrations and come on to a practical issue in relation to Crossrail. You seem to accept that Crossrail must go ahead. Do you accept that because of the benefits that it will deliver for Greater London? Do you accept that similar infrastructure work of a transport nature or another nature could benefit business in other parts of the country? Do you think that a method must be found to fund such schemes or do you think that Crossrail is simply a one-off?

Blake Penfold: Crossrail is certainly very different in scale.

Andrew Love: I understand that. Nobody is suggesting anything as large or complex as that. Could schemes of a smaller nature in the Manchester, Leeds, Bradford or Newcastle conurbations provide a similar level of benefit to the business communities?

Blake Penfold: Yes indeed. Our concern would still be that those benefits might accrue to the owners rather than the occupiers.

Andrew Love: One understands that. As I say, there is sympathy around the room with that difficulty in theory. I have no doubt that you are right that in theory the tenant would be more likely to be positively inclined towards a scheme if they thought that somebody else, such as the landlord, was making a contribution. We accept that, but we are talking about practicality. Crossrail has been on the stocks for 25 years while we have been talking about how to fund it. There is a scheme that can do that, but you are suggesting that it is not acceptable. You accept that other infrastructure schemes in other parts of the country could provide similar benefits, but you do not want this sort of scheme. We have to decide whether that is an appropriate criticism.
It would help us if you had another practicalI emphasise that word againalternative to fund such schemes. I submit that hypothecation is not practical and that getting landlords to involve themselves in a practical sense may not be possible from the experience of business improvement districts. What alternatives can you suggest?

Jerry Schurder: As Blake said earlier, the RICS produced a report a number of years ago looking at a range of options. We have not followed it up for the purpose of looking at business rate supplements. Crossrail has a timetable that is up and running so it is very difficult to suggest that we put everything on hold while we investigate the alternatives. There are alternatives. One that comes to mind is tax increment financing which is capturing the enhancement in land value as the result of a successful scheme. Part of the benefits would be shared between the landlord and the Exchequer. There are others that could be looked at. We do recognise that Crossrail is up and running and needs to be so.

Q 246

Andrew Love: Tax increment funding has been out there for a long time and has major attractions for all the reasons you talk about but, as I understand, it is not at the level where it can be practically delivered now for Crossrail and, one would suspect, perhaps not for some time. I believe you are right that we should be doing a lot more work in that regard.

Q 247

Mark Field: I do not necessarily buy into the slightly hysterical arguments that suggest that Crossrail will not be built if we do not get this Bill through£3 billion out of £17 billion probably reflects the overrun of the project. Given the state of public finances at the moment, £3 billion is extremely small change. We are going to get this thing through and I suspect that this Bill will go through in some form or other.
I do share some of the concerns of Messrs Raynsford and Love on the other side. As someone who many moons ago scraped through my land law exams at university, I know it is a uniquely complicated system of freehold, leasehold and everything else. Surely the argument is to get the tenants to negotiate with the landlords. If there are additional costs from being part of this sort of scheme, there should be negotiations. I accept that at particular times in the economic cycle tenants are not necessarily in the strongest bargaining position but surely that has to be the way forward. Your argument is that it is all a little bit too difficultthat we cannot organise anything. That is a bit too defeatist. Surely there needs to be some banging of heads together. You, as a representative of all sides, should be able to make the case that where there are additional costs through BRS there should, as far as possible, be some measure of divisioninstead of simply saying that we cannot offer anything because the way our land law is organised makes it all too difficult.

Blake Penfold: There is an element of truth in that because many of these occupiers will be on leases with only rent-review clauses and all of those things that you will be familiar with. They do represent real difficulties.

Jerry Schurder: Rent reviews, or at least renewals, are a mechanism for landlords and tenants to engage in discussion. If there is benefit through a scheme there will always be a sharing of that benefit. There is only so much that is available to pay by way of rent, rates and the like. If there is a benefit, relief or cost given, part of that will be passed on and part retained. We are saying that this is not the best mechanism because the landlord is benefiting without having contributed to the scheme.

Q 248

Mark Field: Not directly, at least.

Jerry Schurder: Of course. If the BRS funds a scheme that is a benefit to the landlord or to the tenant in its operation and business, that increases the demand for the property and may well lead to an increase in its rental value. The tenant pays more rent and the landlord benefits. The tenant is also benefiting because he can do better business in the area but he has paid for that and has paid for it again to the landlord by way of increased rent. As an aside, increased rental value feeds through to an increased rateable value, which therefore means he is paying more through business rates as well. It does seem rather too one-sided. Defeatist, I think, is a bit too strong. We need to stand back and ask whether there is a better mechanism for other schemes outside of Crossrail.

Peter Atkinson: There are no further questions.
As you have a little more time before this particular evidence session is over, if there are any other points that you would like to make to the Committee please feel free to do so.

Blake Penfold: There is one point that I would like to make, which is a practical point. Assuming that this Bill is passed, the burden of paying the supplement will rest with the ratepayerthat is, the tenant. It is potentially a substantial administrative burden as well as a financial one. For example, Home Retail GroupArgoswould be asked to pay about 120 supplements across the Greater London authority area.
For the simplicity of the system and for the administrative benefit of supplement payers, I believe that there would be merit in considering making all provisions regarding billing, collection and enforcement sit alongside those ordinary billing, collection and enforcement regulations on normal non-domestic rates. At the moment, BIDs payers suffer from a degree of uncertainty about issues such as what happens when a rateable value changes, what the due dates are and whether payments are allowed by instalments. If the supplement could default to the billing, collection and enforcement arrangements applicable to NDR, that would represent considerable simplicity for taxpayers in budgeting and in making payments.

Peter Atkinson: Thank you. Are there any further points from the Committee on that? No.
Thank you both for coming along and for your interesting contribution to the debate about this Bill.

Peter Atkinson: I welcome our two representatives from the Local Government Association and thank them both for coming here. We have until seven oclock, in theory, but I rather suspect that there will be a Division shortly, after 10 minutes to 7, in which case todays business will come to a premature end, if Mr. Watts is quick on his feet.
For the record, Councillors, could you please introduce yourselves?

Councillor Knight: My name is Councillor Stephen Knight and I am the deputy leader of the London borough of Richmond upon Thames.

Councillor Ross: I am Keith Ross. I am the leader of the Independent group at the Local Government Association and I am also the leader of West Somerset district council.

Councillor Knight: We are here to represent the cross-party settled view of the Local Government Association. Hopefully, we speak with an all-party view from local government.

Q 249

Daniel Rogerson: A lot has been said about how a more constructive relationship could be fostered between business and local government, particularly in terms of economic development but in general about consulting on the future for a local area and how best to fund any changes that are necessary. What potential do you think that this Bill and the business rate supplement have for making some positive changes?

Councillor Ross: The LGA has long felt that business rates generally should be localised and that local authorities should be responsible for setting business rates locally, to meet local needs, local aspirations and the requirements of local economies. We would welcome this Bill as a step in the right direction, although it does not go far enough to meet our wish of having a much more locally empowered tier of government that was able to make decisions to reflect the needs and aspirations of the local economy and the local business sector.

Q 250

Daniel Rogerson: An issue that I would want to return to is ballots and how the current wording in the Bill might change during the Committee stage. The view of the witnesses who represent the business community seems to be that this is the core of the matter for them. They want to be reassured that they will have a final say as to whether a rate should be imposed in their area. What is the associations response to that?

Councillor Knight: Our view is very much that we are a democratic tier of government. We represent and are accountable to our communities. The guarantee to local businesses that this power will not be abused is the guarantee that we are accountable to local communities. We have a direct interest in ensuring that local economies are maintained and sustained, that local employment is sustained, that local high streets are sustained and that we have a vital local economy. We have key responsibilities and requirements to keep local economies healthy and sustained. The requirements in different areas will be very different.
We would say that local authorities ought to be trusted, given our accountability, to make such decisions. We do engage with businesses. In my own authority we have a business breakfast tomorrow morning. Two hundred business leaders from my borough are coming together to discuss the local economy and the issues surrounding the coming recession and what the local authority can do to work better with businesses to enhance the local economy. We are very much plugged in to the economy. It is a key part of the community that we lead and represent. Our democratic legitimacy gives us the position to do so. Local authorities have demonstrated that we are very good at representing and leading local communities.

Councillor Ross: Historically, before business rates, we had a good relationship with businesses because we used to set the rates with business and had a full consultation before that rate was set locally.

Q 251

Daniel Rogerson: I am sure that that was the case, but we have heard that in some areas things may not have been quite as happy as the picture you describe. Do you not accept that there might be something different above and beyond the traditional business rate, if we are talking about something for a specific project that is an extra financial cost to business, and that there might be a case for something above and beyond the usual consultation and discussion?

Councillor Knight: I think the problem is that many schemes and projects to promote the wider economy of an area may not have an immediate bottom-line return to an individual business in that area. The benefit might be wider. It might be much more long term. In the case of Crossrail, it may be 20 years before the scheme is up and running and anybody benefits in terms of their bottom line. But clearly there is a wider economic benefit to the whole business community.
The associations view is that local government, as the democratic tier of government tasked with representing and leading communities, is best placed to engage with businesses and ultimately to make the decisions about what is in the best interests of local economies. We would want the flexibility to be able to work with businesses to put together schemes that would have to have broad business support to go forward. Like you, we are accountable politicians. If we put forward proposals that do not have the broad backing of local people, we would soon find ourselves out of a job.

Q 252

Neil Turner: It is a long time since the business vote was abolished. How do you feel about businessmen who have a vote as citizens having a second vote as a business, and a possible veto on local government decisions?

Councillor Ross: I am certainly not in favour of a business vote as a second vote. That goes beyond the historic situation in this country, which is one man, one vote, and I think that it should stay so.

Neil Turner: Do I take it from that that you would oppose businesses having a vote on the business rate supplement?

Councillor Ross: Full consultation with business is a better way forward than having a ballot.

Q 253

Neil Turner: A number of the previous witnesses have said that the measure is about Crossrail. They accept that Crossrail is unique to London and it should not be replicated in other parts of the country. However, coming from Greater Manchester, I can see a situation in which we might want to extend the Manchester metro to the Trafford centre, which would clearly benefit businesses, but would not specifically benefit my constituents in Wigan. Do you think that the argument does not stand up to that kind of situation and that businesses should contribute to that specific extension of Metrolink?

Councillor Ross: If it will encourage more business, it will probably be of interest to your constituents as well, if they have easier access to businesses in downtown Manchester, for instance.

Q 254

Neil Turner: I should explain that the Trafford centre is a huge out-of-town shopping centre and it generates huge amounts of traffic on the M60Manchesters equivalent of the M25so having an extension of the Metrolink from Manchester to there would benefit the citizens of Wigan to a small degree, but it would be much more beneficial to the people who are in the Trafford centre itself. All I am asking is: do you think that in those circumstances, people in the businesses there should contribute to that scheme because they are going to get more benefit than the citizens of Wigan, who would otherwise have to partially fund the extension, as ratepayers through the Greater Manchester passenger transport executive.

Councillor Knight: We could give a view on that, but the broader view that we want to present to you is that this would be a decision

Neil Turner: I am using that as an example.

Councillor Knight: Indeed, but it is the sort of decision that we would like to see taken locally, because it is the local authorities in that area that would be best placed to make a decision on whether such a scheme would have a wider economic benefit for their authority area. We could offer a view on whether it was good thing or not, as could everyone around the table, but the authority is the group of people who are elected to represent that area, and they are the people with the best knowledge of their local communities and so on. You could take a similar view on Crossrail: there are parts of London that will benefit far more than others from Crossrail.

Q 255

Neil Turner: The point I am trying to get to is that previous witnesses were saying that the process should not be extended to other parts of the country. The case of the Metrolink and the Trafford centre is an example of where a particular part of Greater Manchester could benefit, and the scheme either gets funded by all the citizens, as council tax payers, or part of it gets funded by those who are going to benefit from it. Is it your view that that second part is rightthat the Bill should go through and that the ability to have a supplementary rate should be throughout the country, rather than being limited to London?

Councillor Ross: You are making the case that Wigan is, I presume, apart from the Trafford centre and not many people in Wigan would use the Trafford Centre. I have a similar view regarding the county in which I live. If the county council, as the authority that was going to benefit from the business rate, was going to charge that supplementary to every business in the county, there are many businesses in the county that would not benefit and a lot of the citizens would not benefit. I think that, certainly in two-tier areas, precepting authority should be, not the county council, but the district council, and that any such scheme should be centred on a district that worked with a neighbouring districteven one in another county if necessaryto develop a scheme that benefited the community.

Councillor Knight: In the current economic climate, it is clear that all local authorities are looking very hard at how they can help their business communities to survive the recession. We are all looking at potential economic development schemes and so on that could help to promote and develop our communities and economies locally. A new and additional source of funding that will help to deliver new and additional things that will help the local economy would therefore be welcomed by authorities across the country, not only in London. Everybody has economic needs, and economic development is an issue on which local authorities want, and are well placed, to intervene successfully. We hope that the Bill will go some way to providing extra powers to enable authorities to do that.

Q 256

Mark Field: Many of us here would instinctively support the element of localisation to which you referredI was a councillor before becoming a Member of Parliamentbut the reality of the situation and the dire straits of the public finances mean that there is no question that there will be a great expansion in localisation. Understandably, central Government, of whichever party, will want to try hang on to control of the public finances and not go down the route of, say, policy 30 years ago.
Also, I should say that one area in my constituency still has a business vote. For historical reasons, the City of London retains a business vote with only 8,000 local residents.

Councillor Knight: And, indeed, a form of supplementary business rate.

Q 257

Mark Field: As I have already pointed out, it does have a form of supplementary business rate. That is the quid pro quo of maintaining the business vote, and the small residential population gets looked after quite well.
Perhaps one difficulty from the London perspective for you, Councillor Knight, is that a significant number of the people who live in Richmond do not work there, and a significant number who work there do not live there. That could be a London and outskirts-of-London phenomenonthe situation may not be the same in west Somerset. How will you realistically make the case for what is an increasingly disparate tax base, considering the legislation and BIDsI suspect that they do not appear in Richmond, but you will have come across the conceptto a residential population to whom you are actually accountable, beyond the business population, to whom you might like to have a certain level of accountability but which, realistically, you do not have at this juncture.

Councillor Knight: I think what you are really asking is the extent to which the local residential population has an interest in the business activity of the area. The population have an interest, because many of them are employed locally. Even when a number of people are employed in London boroughs where they do not live, as you said, a lot of the businesses will be in high streets, and the vitality of shopping centres is part of a local community.
In my own borough, we recently had an announcement that the Stag brewery in Mortlake, which I believe is the oldest working brewery anywhere in the UKit has been in existence for 600 yearsis about to close its doors. That has a huge impact on the local community, not only in terms of local jobs, but in terms of the environment, because we have to ask what will happen on such a major site, where there might a planning application for new housing and so on. There is a huge interest for the local community. If people see jobs going locally, they know that their job is not that far away. They will expect businesses to be supported.
In a sense, a community goes into decline when its economy goes into decline, and nobody wants to live in a declining community. Boroughs can be relatively small, and people can cross borough boundaries, but London works fairly collectively. In the case of the business rate supplement, the boroughs will merely have the role of collecting the wider supplement on behalf of the Mayor and the Crossrail scheme, which will use most of the money.
Our argument earlier in the process was that boroughs ought to have more of a role in a London business rate supplement and perhaps share some of the proceeds for more localised business benefit, so that every part of London could see some benefit from the supplement. Clearly, we all support Crossrail and want to see it succeed, but it is difficult to sell the benefits of Crossrail in areas of London that are far away from it. Crossrail does not go directly through my borough and we do not see a direct benefit for local businesses; that is even starker in places such as Croydon and Bromley.

Q 258

Sadiq Khan: The LGA is in favour of Crossrail and also in favour, in general terms, of the Billis that correct?

Councillor Knight: Yes.

Q 259

Sadiq Khan: I have a couple of questions but, first, some generalisations. You would say that most local authorities have good relations with local businesses.

Councillor Ross: Yes, as a generality.

Q 260

Sadiq Khan: And as a caricature or a generalisation, you would say that perhaps that during localisation in the 70s and 80sthe utopia that Mark so enjoysthe relationship was not so good.

Councillor Ross: That was when I was in business and not a councillor. You are absolutely right.

Councillor Knight: The nature of the interaction between local businesses and local authorities has changed as a result of local authorities no longer setting the business rate. As you might expect, the relationship is therefore different.

Q 261

Sadiq Khan: Excellent. What would you say to the school of thought that the only way that businesses can be consulted properly is via a ballot?

Councillor Knight: I do not agree with that at all. Just as central Government do not hold a ballot for setting corporation tax it is not necessary for local government to hold ballots for setting local tax. We are democratically accountable politicians: we stand on a manifesto, we are accountable to the community more generally through the ballot and we have a responsibility for maintaining thriving communities.

Q 262

Sadiq Khan: In your submission, you say that you are against the obligation always to have a ballot on a BRS; you want the discretion, which we will discuss in a second. Tell me your views on the requirements for ballots on BIDs. Why do you have different points of view, if you do, on BRS and on BIDs?

Councillor Knight: I am not sure that I do, but I am probably not in a good position to talk to you about the BIDs process because I am not an expert on how it works.

Councillor Ross: Neither am I, but it would surprise me if there were a ballot for BIDs.

Sadiq Khan: There isit is compulsory.

Councillor Ross: What I know about BIDs is that local authorities that have gone down the BID route have welcomed it as a way of improving their areas. My neighbouring authority, Kingston upon Thames, has a BID, which was probably one of the first in the country. It has clearly worked well and has a lot of support. I think that local government would say more generally that a BID is a very restrictive way of getting funding for work on developing town centres and businesses. In an ideal world we would like much more flexibility, to work more flexibly with businesses and to have more control over business rates in order to have more powers in that area.

Q 263

Sadiq Khan: Some witnesses today have said they want ballots all the time. Do you want ballots none of the time?

Councillor Knight: It should be up to local authorities to decide whether they want to hold a ballot, be it an indicative ballot or a deciding one.

Q 264

Sadiq Khan: You and the other witnesses today are almost at two extremes. What are your views on the maximum level of income that can be derived? Do you favour a 4p limit?

Councillor Knight: I think that we accept that. Lyons said that 4p ought to be the upper limit. Ideally, we would say that there should not be a limit, but that it should be a matter for local authorities, which, working with local businesses, are best placed to decide the appropriate amount to best support their local economy.

Q 265

Sadiq Khan: So, is it fair to say that the proposal in this Billnot a ballot never, nor a ballot all the time, but a ballot when certain hurdles have been overcomeis a middle way between the two polarised views? Is that a fair summary?

Councillor Ross: Should not there just be a full consultation with business? If business wants to get involved, it will get on board, and if it does not want to get involved, it will not. You could weigh up the number of businesses, I suppose, so you would have an informal ballot in that sense.

Q 266

Sadiq Khan: There is statutory consultation in the Bill, which I am sure you have read.

Councillor Ross: Yes.

Q 267

Sadiq Khan: Great. So you welcome that.

Councillor Ross: Yes.

Q 268

Sadiq Khan: Finally, on the discretion that you talk about for local authorities, you will of course be aware that it is possible, in the prospectusin the consultation that Councillor Ross wantsfor there to be flexibility for local authorities in relation to the funding that local businesses give. That flexibility is there.

Councillor Knight: Our argument is that there should be the maximum flexibility for local authorities to respond to local needs. Our main problem with the Bill as it stands at the moment is that there is far too much prescription in terms of what the limits should be, and so on.

Q 269

Sadiq Khan: The previous witnesses, whom you may not have heard, wanted even more prescription.

Councillor Knight: Indeed.

Q 270

Sadiq Khan: You want even more flexibility. I shall repeat my question. Do you think that the business rate process offered in the Bill as it is written now provides a sort of the middle way between the two extremes?

Andrew Love: A good compromise.

Sadiq Khan: Indeed.

Councillor Ross: If I may, I think that hard-wiring 2p on the face of the Bill is probably not the way forward. There should be flexibility in the Bill for regulation. That then becomes part of the businesses decision. If they want to contribute more to a scheme, then they would.

Q 271

Sadiq Khan: And they can do so.

Councillor Ross: They can, yes. What? In the Bill?

Q 272

Sadiq Khan: If you are a businessman you can make a contribution.

Councillor Ross: You can put as much as you like in, yes.

Q 273

Sadiq Khan: Mayor Johnson would be grateful to receive that, I am sure.

Councillor Ross: Or as little as you likeactually, no, that would be a minimum, too, wouldnt it? So there is no flexibility in the Bill.

Sadiq Khan: Thank you.

Q 274

Bob Neill: The Under-Secretary of State can read my mind. I can see him setting himself up as the apostle of the moderate way through the middle on this.
Have you, on behalf of the LGA, or your officers carried out any survey of how many local authorities within the LGA membership would wish to exercise these powers and on what sort of projects?

Councillor Ross: We understand that, at the moment, no local authority is hungry for these powers. It is a very difficult time anyway.

Q 275

Bob Neill: Indeed, we have a submission from the Mayor of London and, again, he limits it purely to Crossrail.
I understand where you are coming from in desiring greater local flexibility, going back to Lyons, and so on. Following the logic of that, if you have power to raise a supplement, should not there also be a power to make a reduction in the business rate if you thought that that was appropriate for local circumstances?

Councillor Ross: Absolutely.

Councillor Knight: Yes, we would support that.

Q 276

Nick Raynsford: The questioning that you have heard will have made it absolutely clear that what we are hearing from you is diametrically opposed to the message that we have been hearing most of the day from most of the representatives of business, who gaveif I can just simplify it and, hopefully, not exaggerate itgrudging acceptance to the Bills provisions as a mechanism for funding Crossrail, but were otherwise deeply suspicious of local authorities using this essentially as a means of tapping business for more funds.
What are you going to do to try to overcome what is, to be frank, a dialogue of the deaf? Both of you say you think the two parties have a good relationship, but that is clearly far from the reality. It is an extraordinary experience for us to hear completely different points of view coming from the two sides.

Councillor Knight: I think that, at local level, we do have a good dialogue and a good relationship with our local businesses. The local strategic partnerships provide a platform for that and, in most areas, they work well. It is always difficult for businesses to strike a balance where they can see an extra levy or tax hitting their bottom line and they do not necessarily know at the outset what the benefit is going to be. As politicians all know, it is rare that anybody will volunteer for extra taxes, although everybody wants the extra benefits that come from them. You are probably seeing that happen today at the level of businesses.
Local authorities and government are best placed to think of the long-term economic benefits for their community of particular investment in needs, whereas businesses and the market are good at looking at short-term gain, and, as we know from the current economic climate, not so good at planning for the long term. There are always public goods which elementary micro-economics would tell us the market would never provide. We are saying that local government needs powers to provide public goods for the local economy which the market may not voluntarily provide, but which are in the best interests of communities.

Q 277

Nick Raynsford: I hear that argument. Lyons heard it and came forward with a proposal that formed the basis of the Bill, which you described in your opening remarks as a step in the right direction but which has unleashed a very hostile response from the overwhelming majority of the representatives of the business community who have given evidence to us. The clear message is that the LGA has a job to do by way of a charm offensive to win the case for the ability to do positive things for the local economy. I would have thought that it ought to be receiving a more positive response from business than it is.

Councillor Ross: Perhaps we would have a better relationship with business if we were given the power to raise the whole of the business rate ourselves.

Nick Raynsford: Not on the basis of what they said to us earlier today.

Councillor Ross: They have probably forgotten the experience, but I think that there is a case for working with them and setting a rate to fund all the infrastructure activity through that process.

Q 278

Nick Raynsford: Not a single representative of the business community has given evidence that they would support that, any more than they would support your proposals to give district councils or London boroughs the power to do it, to abolish the 2p limit and allow a higher figure, or to leave ballots entirely to the discretion of local authorities. Frankly, those proposals are for the birds, as far as the business community is concerned. The situation is that two polarised views are being expressed to us.

Councillor Knight: Were a local authority to come forward with a proposal on a supplementary business rate, no doubt local businesses would be involved in a lively public debate in the locality about the potential impact on businesses, the benefits of the proposed scheme and so on. Our submission is that that debate should happen locally around the scheme among the local people who will, first, be paying for it, and, secondly, be benefiting from it. As the representatives of the community, local authorities are best placed to make such decisions.
We are no strangers to difficult, contentious local issues. We all take contentious, difficult decisions in the interests of our local community. Sometimes very strong vested interests argue one way or another, and we have to balance competing demands. We do that day in, day out. Upper-tier authorities in this country manage multi-billion pound budgets and take tough decisions. It is no surprise to us when issues are contentious or difficult. We are used to dealing with them, and sometimes the right decision for the long-term benefit of an areas economy will not be popular with everybody in the short term.

Q 279

Nick Raynsford: I hear all of that, and I am sympathetic to it, but you really have a big job to do to convince the business community of it.
This is my final question, and it is probably slightly unfair

Councillor Ross: Before you ask it, could I carry on with that answer? Perhaps the focus in the Bill is wrong. It is more on the supplementary rate than on the scheme. Perhaps you should look at the schemeobviously, there has to be a scheme firstbefore you bring in the business rate supplement.

Q 280

Nick Raynsford: But I have to tell you from my experience of the balance of funding review some years agoSir Michael Lyons would repeat this, based on the experience of his inquirythat when the whole question of relocalisation of the business rate came up, the reaction of business was just as strong and hostile as we are hearing now.

Councillor Ross: What I am saying is that the first consultation should be on the scheme, not just the funding of it. If businesses were to look at the scheme rather than what is proposed in the Bill, which is the supplementary rate, you might get a different answer.

Q 281

Nick Raynsford: I was going to come on to what I think may be an area of optimism. It is slightly unfair to ask this question, as both of you said that you do not have much experience of it, but BIDs are an area where there has been surprising progress. There was a great deal of scepticism at the outset. Not many of those who now say that they are in favour of BIDs were saying that when we introduced the scheme in the 2003 legislation, but there is now growing support for it.
It seems to me that the way forwardI ask you to comment and think about thisis probably to try to build on that practical experience, which certainly chimes with Councillor Rosss view that we should focus on the merits of individual schemes for delivering benefits, rather than the theoretical taxation system.

Councillor Knight: That is right. There seems to be wide support for Crossrail, in part because we know what we are paying for. You are, in a sense, debating a tax-raising power in the abstract, without knowing what it will pay for. It becomes quite difficult then. As soon as you say, Is it right to raise extra business rates to pay for this scheme in this area that will deliver this benefit? and everybody can see the benefit, you can start to have that debate and the business community can be involved and so on. However, that sort of debate can only happen locally once the local authority has developed a scheme and put it out to consultation with the business community.

Q 282

Nick Raynsford: I should not put this question, because I said that the previous one was my last, but you have provoked it. Do you not think that it is a shame that there are not schemes that you can wheel out? You said that there were not any schemes, apart from Crossrail, that local government is currently preparing. Should there not be some practical projects being worked up by local government in conjunction with local business?

Councillor Ross: There are some ideas. There is an idea in Sheffield about a development there, but apparently the supplementary business rate would not apply to that scheme because it goes beyond infrastructure or involves housing, and I think housing is excluded under the Bill.

Nick Raynsford: It is excluded, yes.

Q 283

Paul Farrelly: Not representing a London constituency, I had not looked terribly hard, until these Committee proceedings, at Crossrails finances. We will find out on Thursday when we ask the Minister, but I do not know where the £50,000 threshold has come from. I imagine that it has been arrived at to make the Crossrail sums add up. How do you feel about the £50,000 threshold, given that at that level, although there is discretion to amend it, you might be able locally as collecting agents to say, Not us, guv. Thats the Governments recommendation? If you had other schemes around the country, how do you think local councils, having been collectors of business rates, would be able to deal with the changed relationship with business that might occur if certain groups lobbied you with special pleading that meant that they got off and that it landed on other businesses or retailers in the town? How do you think that it might alter the relationship with business?

Councillor Ross: It is probably not just in relation to large business that the limit that you give of £50,000 is too high. I checked with our tax department this morning and, interestingly, a significant number of the businesses that have a rateable value of more than £50,000 are hospitals, schools and public buildings, so you will be taxing facilities that should not be taxed, such as schools and hospitals. I wondered why you had not even thought about putting an exemption for public buildings in the Bill. Lowering the level would counteract that tax take.

Paul Farrelly: That is an excellent question for the Minister, along with questions about ports and sports clubs, on Thursday.

Q 284

Andrew Love: I was rather taken aback by how strong an objection you had to holding a ballot, and I wanted to put this circumstance to you. Business men have a vote as individuals, but they often live in another area rather than the relevant local authority area, so they cannot exercise their democratic rights effectively on behalf of their business. Where business makes a major contribution towards the infrastructure project, is it not appropriate that it should have some real say in whether it goes ahead?

Councillor Ross: Businesses can have a real say through the consultation process. I do not believe that it needs a ballot to force them to vote.

Q 285

Andrew Love: That is what you said earlier, but let me press you on it, because we heard earlier in evidence that in terms of business improvement districts, it is becoming clear that the fact that a ballot is mandatory means that all the parties take much more seriously the exercise that they must go through to build consensus so that the BID can go ahead. The fear expressed to us by all the business organisations was that if there were no ballot in any circumstance, consultation would be perfunctory: Nice to see you, thanks very much, heres the scheme; go away and pay up. Do you not think that there is some merit and some reality to that?

Councillor Knight: Our experience of dealing with any controversial issue is very much that when you consult on something controversial, people who have strongly held views will make them very clearly known at a local level. It is inconceivable that local authorities would make a decision on something as significant as a business rate supplement without knowing the views of the major businesses in their area, or indeed of any other important businesses in their area. No authority will make a decision that has a detrimental effect on its local business community. That is an integral part of the community and its viability and sustainability.

Q 286

Andrew Love: I understand that. Local government is often characterisedindeed, it was characterised to us earlieras inviting people in and saying, How can we get more money for this project? I accept what you are sayingthat if real hostility came through on a consultation, you would be unlikely to proceed with the schemebut what I am talking about is building trust and confidence in the business community, which I must tell you has not been expressed this afternoon. One way to do that is to give reassurance. We are not suggesting that that should be done in every single instance; we are only suggesting it where a major contribution is being made. In other words, where the business community could easily feel that it is being used as a milch cow to fund a project, it ought to have some veto available. Is there not merit in that proposal?

Councillor Knight: We live in a representative democracy. We generally do not have ballots and referendums on major projects. There is a lot of international experience of that sort of thing happening, locally and nationally, on a regular basis, but it is not part of the British tradition. It does not happen at a national level, and we do not see the need for it to happen on the same basis at a local level.
In many ways, we feel that because we are local, we are far more accountable for the decisions that we take than national Government are for their decisions. We are much more directly accountable to our local communities. It would be inconceivableimpossiblefor a local authority to proceed with this kind of proposal without the broad backing of its local business community.

Councillor Ross: Two pence in the pound is small beer when it comes to the business rate, is it not? Should big business be too worried about paying an extra 2p in the pound? It will have to pay more than that anyway, with a 5 per cent. increase coming up this year.

Q 287

Andrew Love: I am not here to answer for the business community, for a start. It is interesting that you should say that, because we have heard this afternoon that one of the areas where business improvement districts have worked effectively and managed to get support is Dublin. On other ballots, of course, the Irish have proved somewhat difficult. You can always find an occasion when things will work in your favour.
The essence of the matter is that, although I accept that representative democracy should mean in theory that we all go to ballot in national and local elections, and that is how we choose who will take us forward, we are talking about trying to build consensus at local level. It certainly appears from the evidence, the comments of others and the extremity of the views expressed to us on both sides that perhaps a ballot is one way for us to reassure and build the trust that will allow sensible schemes to go ahead, but only in circumstances where a significant proportion of funding comes from the business community. However, I understand your view.

Councillor Knight: I think, too, that there is a general democratic view about how decisions are taken, apart from in the City of London, which is a very particular case. We generally take the view in this country that democracy is based on one citizen or one person, one vote, and not on businesses having a vote on decisions affecting the community.

Councillor Ross: If you are going to ask businesses to vote, again talking about shire countiesa bigger area for businesses to coveryou will probably find that most businesses would not support any scheme, because it would not touch them. For instance, my home-ish town is 18 miles away from Frome. The towns have nothing in common, apart from their both being in Somerset. Wincanton is closer to Andover than it is to where I live. So should you include three other counties in a development around Wincanton Transport when it goes bust and that site needs to be redeveloped?

Peter Atkinson: Thank you. If Members have no further questions for this panel, that brings us to the end of our business for today. The Committee will sit again at 9 oclock on Thursday, but this time in the Boothroyd room.

Ordered, That further consideration be now adjourned. (Mr. Watts.)

Adjourned till Thursday 22 January at Nine oclock.